When is the right time to enter mutual funds?

A million dollar question which people tend to ask before investing is, “when is the right time to invest in mutual fund/equity market?” Conventional wisdom says - enter when the markets are low or enter when P/E ratio falls below a certain threshold so on. Multiple theories advocate right time of investing. The fear is “what if I invest and market crashes after I invest?”, in such cases portfolio would be under loss.

Let’s assume, few of our investors were accurate in predicting the market lows and invested in Sensex/index fund right at bottom of the market in the given period. Let’s say some of the investors got carried away with the Bull Run and invested Growth Fund at the market peak. How much of difference would it make in the short term and in the long run;

One time investment in Sensex – at various market levels

The table given below talks about the returns generated by both the set of investors who invest when the market was low and when the market was high;

Source of Index values: www.bseindia.com

The process of wealth creation requires patience and discipline. In Short term investment horizon, the performance of the portfolio can be extreme, but in long term the performance normalizes. Irrespective of the time of entry, to reap the benefits in equity markets an Investor should stay invested for at least 7 to 10 years or more. In the long run, equity investments have always out performed inflation consistently. Investing in mutual funds, would add the benefit of active fund management and tends to outperform the benchmark (normally Sensex/Nifty incase of large cap funds) in the long run.

When you are looking at achieving long term financial goals, there is no right or wrong time to enter the market. Start today!